The limits of modularity in innovation and production
Modularity has gained recently a growing attention in the management literature as a key to explain the contemporary trends of industrial dynamics, according to which external «market-based» economies have become predominant over internal «bureaucracy-based» economies. Nowadays global supply-networks play a key role for a large share of material and immaterial inputs in many sectors, and the diffusion of modular architectures for products, in connection with flexible production systems, is often indicated by the literature as the main driver for this change. In order to analyze better this connection, in this paper a model is presented which tries to focus on the factors that influence the competitive performance of internal versus outsourced production when the two options are subject to a trade-off with respect to the kind of innovation strategies they can use. In particular through a set of exploratory agent-based simulations we verify two hypotheses. The first one is the existence of a trade-off between decentralized search and complexity, as suggested by a recent strand of literature which has modeled innovation as a discovery process on complex fitness landscapes. The second one is a comparative advantage of centralized search, which occurs, for all levels of complexity, when the returns of innovation are lower. When the conditions just described occur in a competitive context, the limits of modularity become apparent.
|Date of creation:||Sep 2005|
|Date of revision:||Sep 2005|
|Contact details of provider:|| Postal: via Sarfatti, 25 - 20136 Milano - Italy|
Web page: http://www.kites.unibocconi.it/
|Order Information:|| Postal: E G E A - via R. Sarfatti, 25 - 20136 Milano -Italy|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luigi Marengo & Giovanni Dosi & Paolo Legrenzi & Corrado Pasquali, 1999.
"The structure of problem-solving knowledge and the structure of organisations,"
LEM Papers Series
1999/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Marengo, Luigi, et al, 2000. "The Structure of Problem-Solving Knowledge and the Structure of Organizations," Industrial and Corporate Change, Oxford University Press, vol. 9(4), pages 757-88, December.
- Raaj Kumar Sah & Joseph E. Stiglitz, 1984.
"The Architecture of Economic Systems: Hierarchies and Polyarchies,"
NBER Working Papers
1334, National Bureau of Economic Research, Inc.
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-27, September.
- Langlois, Richard N. & Robertson, Paul L., 1989. "Explaining Vertical Integration: Lessons from the American Automobile Industry," The Journal of Economic History, Cambridge University Press, vol. 49(02), pages 361-375, June.
- Klepper, Steven, 1997. "Industry Life Cycles," Industrial and Corporate Change, Oxford University Press, vol. 6(1), pages 145-81.
- Stefano Brusoni & Luigi Marengo & Andrea Prencipe & Marco Valente, 2004. "The Value and Costs of Modularity: A Cognitive Perspective," SPRU Working Paper Series 123, SPRU - Science and Technology Policy Research, University of Sussex.
- Saviotti, P. P. & Metcalfe, J. S., 1984. "A theoretical approach to the construction of technological output indicators," Research Policy, Elsevier, vol. 13(3), pages 141-151, June.
- Langlois, Richard N. & Robertson, Paul L., 1992. "Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries," Research Policy, Elsevier, vol. 21(4), pages 297-313, August.
- Fleming, Lee & Sorenson, Olav, 2001. "Technology as a complex adaptive system: evidence from patent data," Research Policy, Elsevier, vol. 30(7), pages 1019-1039, August.
- Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
- Richard N. Langlois, 2001.
"The Vanishing Hand: the Changing Dynamics of Industrial Capitalism,"
- Richard N. Langlois, 2003. "The vanishing hand: the changing dynamics of industrial capitalism," Industrial and Corporate Change, Oxford University Press, vol. 12(2), pages 351-385, April.
- Richard N. Langlois, 2002. "The Vanishing Hand: the Changing Dynamics of Industrial Capitalism," Working papers 2002-21, University of Connecticut, Department of Economics.
- Timothy J. Sturgeon, 2002. "Modular production networks: a new American model of industrial organization," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 451-496, June.
- Nightingale, P., 2000. "The product-process-organisation relationship in complex development projects," Research Policy, Elsevier, vol. 29(7-8), pages 913-930, August.
- Herbert A. Simon, 2002. "Near decomposability and the speed of evolution," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 587-599, June.
- Lombardi, Mauro, 2003. "The evolution of local production systems: the emergence of the "invisible mind" and the evolutionary pressures towards more visible "minds"," Research Policy, Elsevier, vol. 32(8), pages 1443-1462, September.
- Faïz Gallouj & Olivier Weinstein, 1997.
"Innovation in services,"
- Marengo, Luigi & Dosi, Giovanni, 2005.
"Division of labor, organizational coordination and market mechanisms in collective problem-solving,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 58(2), pages 303-326, October.
- Luigi Marengo & Giovanni Dosi, 2003. "Division of Labor, Organizational Coordination and Market Mechanism in Collective Problem-Solving," LEM Papers Series 2003/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
- Koen Frenken & Luigi Marengo & Marco Valente, 1999. "Interdependencies, nearly-decomposability and adaption," CEEL Working Papers 9903, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Giovanni Dosi & Daniel Levinthal & Luigi Marengo, 2002. "The Uneasy Organizational Matching Between Distribution of Knowledge, Divisionof Labor and Incentive Governance," LEM Papers Series 2002/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
- Brusoni, Stefano & Prencipe, Andrea, 2001. "Unpacking the Black Box of Modularity: Technologies, Products and Organizations," Industrial and Corporate Change, Oxford University Press, vol. 10(1), pages 179-205, March.
- Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics 0203001, EconWPA, revised 15 Aug 2002.
- Langlois, Richard N., 2002.
"Modularity in technology and organization,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 49(1), pages 19-37, September.
- Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
- Herbert A. Simon, 1991. "Organizations and Markets," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 25-44, Spring.
When requesting a correction, please mention this item's handle: RePEc:cri:cespri:wp176. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valerio Sterzi)
If references are entirely missing, you can add them using this form.